For most, owning real estate represents years of hard work. Sometimes, depending on the state of economy, your house could be your largest asset. Or, it could be your biggest debt. Either way, during a divorce it must be dealt with. The options are many and depend on your particular situation. Learn more below.
In a divorce, property is classified into one of three categories, or estates: Spouse A’s non-marital estate, Spouse B’s non-marital estate, and the marital estate. How property is classified determines how it will be divided, if at all, by the court. Each non-marital estate will be assigned to its respective owner and the marital property will be split equitably.
In many cases a house is the principal asset of the parties and its classification is very important to the final distribution of property. In practice, the house could belong to any of the three categories depending on various factors.
The most common and straightforward classification of a house is as follows. John and Sue are engaged. Neither one of them owns a house. The couple gets married. After the wedding they open a joint checking account and combine their individual savings and checking accounts. They find their dream house, make an offer, its accepted, and they sign a contract, and make the down payment with funds from their joint bank account. A couple months later, they close the deal and take the house in either joint tenants or tenants in the entirety (that is, both of their names are on the deed). They then pay the mortgage out of their joint checking account.
In this example, the house is marital property. The court will determine the equity in the house and it will be split between the parties equitably.
The next example is similar but varies in that the source of the down payment is different. John and Sue are ready to the knot. Neither own a house. They get hitched. They decide to buy a house and sign a contract for a townhouse in the suburbs. Sue pays for the down payment out of a checking account that she opened when her aunt and left her $100,000. Both of their names go on the deed and they pay for the mortgage out of a joint checking account.
Is part of the house Sue’s non-marital property? Probably not. The entirety of the house will be classified as marital property. Although Sue paid for the down payment with her own money the court will view this payment as a gift to marital estate. The court will do this because other facts indicate that it was a gift. For example, both of their names were put on the deed and marital funds were used to pay the mortgage.
The last variation on our hypothetical is different. Here, Sue mortgages a house before she meets John. The house is in Sue’s name alone. She has a good paying job. When John and Sue tie the knot, Sue has paid off the majority of her loan but still owes $50,000 on the house. The couple proceeds as in previous examples by putting all their money into a joint checking account. From there, the couple writes a check to the bank to pay off the house loan.
In this example, the house would be classified as non-marital property. The house was purchased before the marriage, it is in Sue’s name alone, and no transfer was made after the marriage to put John’s name on the deed. The payment by the marital estate alone is not enough to convert it to marital property.
What happens then to the $50,000 that was contributed by the marital estate? The court will order that the marital estate is reimbursed by Sue in that amount, and it will be split equitably by the parties.